Opinion
00 Civ. 7677 (RO).
May 17, 2007
OPINION AND ORDER
In this breach of contract case commenced in this Court nearly seven years ago against the Pepsi Cola Company, plaintiff Compania Embotelladora Del Pacifico, S.A. ("CEPSA"), a Peruvian bottling corporation in bankruptcy liquidation, now asks me to lift the stay imposed by the Second Circuit. CEPSA, which had been owned and operated by members of the Heredia family since its formation, was put into involuntary liquidation under Peruvian law on November 19, 1999 following the "acrimonious unraveling of its four-decades-long business relationship with Pepsi." CEPSA v. Pepsi, 114 Fed.App'x 423 (2d Cir. 2004). The initial history of this case is summarized in a prior opinion by this Court, CEPSA v. Pepsi, 249 F. Supp. 2d 339 (S.D.N.Y. 2003), and key parts are here necessarily and appropriately repeated.
In late 2000, almost a year after the filing for liquidation and dissolution, Liquidator Cabrerizo was invited to a meeting with members of the Heredia family and, with their urging, an action was "secretly" prepared and filed in this Court on October 11, 2000. This took place notwithstanding the fact that the Liquidator is appointed by the creditors and is expected to represent their interests as well. The next day, October 12, the Liquidator lied to a Creditors' Committee by, inter alia, preparing and giving it an agenda with a proposal "to retain attorneys for PEPSICO INTERNACTIONAL lawsuit," and telling it that INDECOPI (a government agency with jurisdiction over various economic matters, including bankruptcy) would request a date [in the future] for a full creditors meeting to consider "Retaining a Law Firm for PEPSICO INTERNACIONAL Lawsuit." These statements were false because the Liquidator had already retained an attorney and the action had already been filed, to the Heredia family's advantage, imposing costs upon and stripping the creditors of some ability to protect what assets might to them remain, should they desire.
Under Peruvian law, when a company enters liquidation a Liquidator is appointed who, on behalf of the creditors, is to conduct affairs such as taking inventory, establishing the extent of the company's capital, dealing with payables and receivables, and essentially safeguarding the interest of insolvent estates. See CEPSA, 249 F. Supp. 2d at 340.
See CEPSA, 249 F. Supp. 2d at 340 n. 3.
The Special Creditors' Committee, made up of three members, acts for the full committee of creditors and oversees the company's day-to-day affairs.
At an expanded Meeting of Creditors (called the "Junta") a month later on November 16, 2000, the Liquidator finally told his charges the truth — that the complaint had been filed — and the creditors requested information on the complaint and the New York law firm that filed the action, and agreed to make a decision at a subsequent meeting. The next meeting took place on December 1, 2000, and two votes on whether the question of the "continuation" of the lawsuit should be delayed to a new meeting failed. Four months later at the March 30, 2001 Junta meeting, both Liquidator Cabrerizo and a PEPSICO representative gave presentations, and the creditors' vote still fell short of the majority needed to authorize taking a vote on the continuation of the lawsuit. On July 11, 2001, the Creditors' Committee met and voted to advise the Liquidator that the action was no longer supported and should not be continued. CEPSA, obviously displeased with that vote, went and replaced that Liquidator with another who favored bringing the lawsuit, and the creditors purportedly elected the new Liquidator and appointed a new Creditors' Committee. Next, at a May 9, 2002 meeting, the reconstituted Creditors' Committee went the other way and renounced the July 11, 2001 repudiation of the lawsuit.
The three creditors were Banco Latino, Interbank, and Banco Continental.
The three creditors on the new Creditors Committee were Serviflotas S.A., the Ministry of Economy and Finance, and the Labor Creditor.
The May 9 Committee adopted resolutions declaring that "no legal action whatsoever, filed in Peru or abroad, has been abandoned by [CEPSA]" and that "the Liquidator . . . was and is authorized . . . to sue to defend the interests of the bankruptcy estate in any court pursuant to [the Capital Restructuring Law and General Companies Law]."
This all came back to me in the District Court, and in 2003 I dismissed the complaint. While the Second Circuit in 2004 vacated that order and remanded, it imposed the requirement that:
The Junta itself — not the Special Creditors Committee — must, within a short but reasonable period of time to be established by the district court, formally give its approval in order for it to continue this lawsuit. If the Junta does not do so within the time allotted, the district court may again dismiss this lawsuit as to CEPSA."CEPSA v. Pepsi, 114 Fed.App'x 423, 426 (2d Cir. 2004).
However, notwithstanding the Second Circuit's clear direction above, CEPSA did not come to this Court to work out a timeline and procedure whereby it could take a meaningful vote of the Junta. Instead, CEPSA disregarded the Second Circuit's order, completely bypassed this Court's oversight, went directly to Peru, and on October 15, 2004 obtained a 57% vote from the Junta approving the prosecution of the lawsuit. This conduct has a very troublesome, disturbing ring about it. It is unclear whether CEPSA bypassed this Court because of my prior finding about the "disquieting circumstances of the secret Liquidator/Heredia relationship in the commencement of this action." CEPSA, 249 F. Supp. 2d at 342 n. 10. Thereafter, CEPSA then, for the first time, came to this Court to lift the stay in December 2004. What followed in the nearly three years since has been a complicated and murky series of proceedings in Peruvian courts between CEPSA and Pepsi on whether or not the vote that CEPSA secured was valid or whether any such issue could be challenged in Peru. Pepsi filed an action challenging the Junta vote, and also sought to enjoin enforcement of the vote.
Other aspects of this case are troublesome to the Court, including a resolution of the Third Anti-Corruption Chamber of the Superior Court of Lima dated November 28, 2005, which orders the commencement of criminal proceedings against CEPSA's Peruvian attorneys, Peruvian law experts, and Liquidator for "Corruption of Public Officials", namely for illegally obtaining a draft judicial resolution in a case between CEPSA and Pepsi.
Pepsi claimed, inter alia, that 66% and not a simple majority was needed to create a valid Liquidation Term and approve of the lawsuit.
Pepsi obtained an injunction, which was later dissolved by an appellate court. Pepsi's complaint challenging the validity of the vote was dismissed, but that dismissal was appealed throughout the levels of the Peruvian judiciary. The injunction proceedings were completed at the end of 2006 when the Supreme Court of Peru declined to hear an appeal from a lower court order. During the pendency of those proceedings, both sides submitted multiple affidavits to this Court from Peruvian lawyers. Plaintiffs contended that the 57% vote was valid and that there was no injunction; defendants contended that the 57% vote fell short of the requirement under Peruvian law and that there was an injunction. The number of Peruvian court decisions rivals the number of creditors' meetings that CEPSA tried to get to authorize this lawsuit.
The appeals focus mainly on whether Pepsi has to first bring its claim concerning the October 15 vote before INDECOPI.
This Court held a conference in October 2006 at which time the proceedings in Peru had not yet become final and thus it was unclear whether under Peruvian law the injunction was still in place and whether the Junta's vote was valid. Since that time, the parties have provided numerous supplemental affidavits (the most recent submitted at the beginning of February 2007). At no point before securing the Junta vote in October 2004 had plaintiffs come to this Court to obtain a ruling to establish the timeframe or the requirements for the Junta to "formally give its approval in order for it to continue this lawsuit." CEPSA, 114 Fed.App'x at 426.
There is neither agreement between the parties about what the decisions by the Peruvian courts mean, nor about what light they might shed on whether the Junta's October 2004 vote was valid. What is apparent to me is that, had CEPSA followed the Second Circuit's mandate to return to this Court to work out a procedure, the Court and the parties could have arrived at a solution that would provide clarity. Instead, the waters are now murky because CEPSA disregarded the Second Circuit's order and this Court is now being asked to insert itself into those disturbed Peruvian judicial waters.
Despite CEPSA's arguments that the decisions of Peruvian courts on the effect of the Junta's October 2004 vote are clear, they are not, and the issue continues to be litigated. Indeed, the Fifth Civil Court of the Superior Court of Lima, on December 5, 2006, found that "both the Liquidation Covenant as well as the [Liquidation] Process itself were not in force" (emphasis supplied) in May 2004. Fifth Civil Court, S.C.J. (Peru 2006) translated in Alfageme Declaration of February 7, 2007 at Exhibit B. That court cited, as a reason for issuing an injunction, that there is "the real possibility that [PepsiCo] may be subject of a lawsuit in the city of New York . . . and that it may be forced to participate in a judicial proceeding that may cause it unnecessary high costs and attorney fees." Id. This finding would suggest that there was no valid liquidation covenant when the October 2004 vote was taken, and thus that CEPSA has no authority to force anyone to proceed with its lawsuit.
After seven years, I have before me affidavits from Peruvian lawyers who disagree about whether the vote is meaningless, see supra, or, if not, what vote is required — whether it is a 2/3 majority (66%) or a simple majority (which includes 57%), and a number of decisions by Peruvian courts disagreeing about what vote is required. All this takes place against the clear command, to CEPSA, that the Second Circuit laid down three years ago:
We conclude that to assure ourselves that this lawsuit is being maintained by CEPSA with the approval of CEPSA's creditors, the Junta itself — not the Special Creditors Committee — must, within a short but reasonable period of time to be established by the district court, formally give its approval in order for it to continue this lawsuit. If the Junta does not do so within the time allotted, the district court may again dismiss this lawsuit as to CEPSA. (emphasis supplied).CEPSA, 114 Fed.App'x at 426.
CEPSA did not comply in the slightest with the Second Circuit's directive. CEPSA's motive is clear, and years have passed. Faced with this troublesome mess, and the Court of Appeals' directive to CEPSA not being honored — bypassed — flouted — call it what one may — accordingly I dismiss this lawsuit as to CEPSA. I do not reach the question of the stay, which is obviously moot.
So ordered